UK-based Pace Micro Technology has agreed to buy Philips' set-top box business in exchange for 70m of its shares - equivalent to 23 per cent of the business - the two consumer electronics companies said today.

Pace shareholders have to agree, of course, and so do regulatory authorities.

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The UK company said the deal will allow it to sell 8.5m digital TV receivers and IPTV boxes, an estimate based on sales of Pace and Philips kit in 2006. Pace CEO Neil Gaydon said there was little cross-over between the two firms' existing operations, which means most of the acquired business comes in addition to Pace's existing customer base.

The combined business will leave Pace a global top-three set-top box company, it claimed, citing IMS Research world set-top box shipment figures, again for 2006.

The sale takes in not only Philips' set-top box business but also part of its Connectivity Solutions division, an operation that includes IPTV technology, DECT phones, VoIP handsets and home networking. These last three areas will be retained by Philips and folded into its Peripherals and Accessories unit.